• 6 months ago
  • 1
MN resort worth

What is your resort worth?  We love talking to resort owners and helping them prepare their resort for sale.  Invariably, we get asked to provide a Resort Valuation – just like residential realtors do for homes.  There are BIG differences between how Home Valuations work and how Resort Valuations work.  Sometimes we are not able to provide the “good news” resort sellers are looking for.

Why is this?  Who do I trust? What is my “real” resort valuation? It’s all reasonably simple once you acknowledge that resorts and homes are very different. I know that last line seems very obvious, but there are a number of resort owners who think they can compare their resorts to other home or property sales in their area.

What is wrong with this strategy? Maybe an owner envisions a “developer” buying their resort because they see all the future potential? The love a resort owner has for their resort often clouds logic. Firmly held beliefs are often hard to change.

I acknowledge that Realtors often have different approaches and can be very convincing about their approaches to valuations. When you mix these valuations with the love of your resort and your firmly held beliefs, how do you determine what your resort is really worth?

The answer is really quite simple.

Rather than trusting just your realtor, your love of your resort or your firmly held beliefs about the market, I would encourage you to engage a neutral third party. Some people may say this is an appraiser. If you use a residential appraiser, your efforts will be wasted. If you said a “commercial appraiser with resort appraisal experience”, I would say this is a good start. There are not many qualified appraisers in this area of expertise and it will cost you a fair amount of money. In the end, you will need help interpreting the appraisal and it may just create more questions than answers.

So, what is better than an appraiser? Your banker! BUT read the next paragraphs several times so you understand how to approach your banker.

You undoubtedly have a close relationship with your banker – resort ownership has a tendency to do that. The very first thing you have to tell your banker is you don’t want them to treat you as a friend, but you have a simple question:

“How much would you loan someone to buy my resort?”

Don’t stop there. If you stop there, any answer you get from your banker will be worthless. You should be prepared to say:

“1. Here are my tax returns from the past three years. Use these numbers only.

2.  Assume a buyer will only bring 20% for a down payment.

3.  Assume the buyer has minimal or no resort ownership experience.

4.  Assume the SBA is not involved with any amount you will loan.

5.  Assume the buyer has good or great credit and no outside income from other sources.

6.  Remind them not to treat you as a friend, but instead use the exact parameters in items 1-5.”

Ultimately, banks determine how much a resort can sell for. Unlike residential homes that have a secondary market for their mortgages (FANNIE MAE or FREDDIE MAC), commercial loans are made locally and therefore they have a vested interest in making sure they get paid back. I haven’t met a banker yet who said they wanted to run a resort because a buyer couldn’t make their payment – even if they got a huge down payment or had a very low Loan to Value on the resort!

Why are items 1 – 6 so important? Why is it so important they follow these assumptions exactly? I have had resort owners who consulted their banker as a friend and who told them their resort was worth $X. When I asked the banker how they arrived at that number, they told me: “It’s not my job to tell them their resort isn’t worth $X – that’s your job. If you make enough assumptions I can get to whatever number they want.”

I will be creating separate articles on items 1-6 in coming months. Is there some “wiggle room” – yes – and a banker who is your friend will try to put questions in your head. The purpose here is to get a gut check.  The reality of your banker’s “wiggle room” depends on lots of different things and this is what a good realtor will discuss.

What about the resort’s value to a developer? This is a much more complicated question and requires much more detail to be covered in more articles.

A successful exit from your resort starts with planning.

David Moe Broker/Owner

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